While there was a lot of talk in the weeks immediately after the September attacks of shifting production closer to home, few companies have made substantial changes in their sourcing practices. Concerns that political unrest in certain countries — particularly Pakistan — would lead to missed deliveries or Customs holdups have largely abated.
Some executives said they are still looking to source closer to home, in regions including the Caribbean, Mexico and Canada. But sources reported few major shifts in buying commitments as a result of the attacks.
“When 9/11 happened, people said they would move production home. That lasted for about a week,” said Thomas Haugen, executive director of Hong Kong-based Li & Fung [Trading] Ltd., a global sourcing and full-garment production company. “The product people want to buy can’t be made closer to home, and if it could, people would rather save money and have it made somewhere else.”
Haugen said the largest problem he faces is deferred decision making that leaves his firm a lot less time to fill orders.
“Generally, when an order is placed, the approval takes place, but people are committing at the last minute, which effects the production cycle,” he said.
Haugen said his company is keeping its staff in Pakistan and continues to do business there.
While some had expressed concerns about potential disruptions in other apparel-producing nations, like Malaysia and the Philippines, Haugen said few problems have materialized outside of Pakistan — which shares a border with Afghanistan, where the U.S. continues to conduct a military campaign against suspected terrorists.
“There are not volatile countries like Pakistan. There is Pakistan,” he said. “There are some real opportunities there, because there are empty factories, but people would rather go someplace else.”
While he acknowledged he’s not willing to travel to Pakistan at this time, he said orders for Pakistani-made goods are not changing much. The change is that Li & Fung’s Pakistan staff finds itself travelling to other nations to meet with customers to close deals.
Jon Penrice, global vice president of activewear, outdoor and swimwear at Wilmington, Del.-based DuPont, said proximity is key for his U.S. customers now, meaning that they’re looking more closely at Mexican and Caribbean Basin production.
“People are more concerned about the length of their supply chains and the exposure that they have to delay Customs,” Penrice said.
Unifi Inc. senior vice president Stewart Little said, “I wish I could say there’s been a huge swell of people sourcing in the Caribbean and Mexico. We initially saw some reaction, and people pulled out of some countries, but the full-service garment business models that we need aren’t available here.”
Despite that, Little said he thinks there is still opportunity with the benefits offered by the Caribbean Basin Initiative.
Greensboro, N.C.-based Unifi produces polyester in the U.S. and abroad.
Mary O’Rourke, managing partner at consulting firm Jassin-O’Rourke Group, said that companies are rethinking their sourcing strategies, but that other economic factors are playing into order cancellations.
“We are also in the throes of an economic downturn,” she added. “Everyone was looking for ways to cut costs, and in terms of sourcing, they were looking at cutbacks in the size of orders.”
O’Rourke said she has heard of companies changing workers’ bonuses to be based on the return of capital they earn the company. “Does it make sense to tie up money for 120 days in Asia or for only 60 days in South America, even if the garment costs 10 cents more to make?” O’Rourke asked rhetorically. She said companies determined that capital was better used because of the lead time advantage in South America and suggested companies should look at the overall cost of getting a garment to a warehouse, rather than focus on the price of fabric.
At the Celanese Acetate fabric library in New York post-Sept. 11, there were more customers looking for domestically made fabrics than before, according to Ellen Sweeney, market manager.
“We noticed immediately after Sept. 11 that various retailers all of a sudden wanted domestic resources,” she said. “Big private label retailers would ask to see domestic fabrics up front, and that wasn’t the case before [the terrorist attacks].”
Sweeney acknowledged she wasn’t sure if the retailers actually followed through with orders.
At Catalonia, Spain-based stretch fabrics maker Dogi, U.S. general manager Virgil Simons said the company has factories around the world, which allows it to survive turmoil in one locale. He said the company didn’t close any of its factories and has no plans to do so in the future. Simons said factories in China, Germany, the Philippines, Thailand and Mexico were performing well, but that European and U.S. mills had slowed in recent months.
As a result of the favorable exchange rate and close proximity to the U.S. market, Simons said he thinks Canada will become more popular for manufacturers. “Right now, we have sportswear clients that are doing more and more work in Canada,” he said. “I think there will always be enough of an exchange rate to have solid manufacturing there, especially with the benefits of NAFTA.”
From a strict sourcing perspective, little has changed since Sept. 11, said Bob Zane, senior vice president of Liz Claiborne Inc., while stressing that his firm had not been producing in Pakistan prior to the terrorist attacks.
“As far as the rest of the world, it’s basically unchanged,” Zane said. “We are more concerned about the change in business in general as opposed to the new security elements of Sept. 11. That in itself has resulted in a new conservatism.”
Rather, the economy has had more of an impact on sourcing than the threat of terrorism, Zane said. “We managed quite well during that period, and we were able to preserve our shipments. Our vendor base remains essentially unchanged — again, with the understanding that we were not in Pakistan.”
Travel is down, however, and Zane noted there’s a greater trend of people conducting business via telephone and e-mail.
“People are a bit more conservative when planning their overseas trips,” he said. “Whether that’s security or business-related, who knows?”
Jeffrey White, former president of Shamash & Sons Inc. who now works as a consultant for the company and retains an ownership stake in the firm, said he stopped traveling to less-important events like trade shows after the terrorist attacks.
Dogi’s Simons said there is now a greater premium on plant security and employees.
“There’s a concern when we’re traveling, but I don’t think it has changed the way we do things,” he said. “We’re just more conscientious depending on where we are in the world.”
Meanwhile, Tom Travis, a Miami-based managing partner with Sandler, Travis & Rosenberg, a law firm specializing in trade and customs issues, said he thinks the U.S. has learned a lot in terms of terrorist threats and how that can disrupt business.
“There’s a recession going on, and that’s been a primary factor affecting countries,” Travis said.
“In a broader sense, there are other factors which are starting to influence patterns of trade and textile and apparel products which are going to have a lasting impact,” such as the upcoming elimination of quotas among World Trade Organization nations, he said.
The real fallout of Sept. 11 is the accelerated economic slowdown, he said: “In terms of apparel sourcing, I don’t see a major change, but I see a major change due to the recession.”
Allan Ellinger, senior managing director at Marketing Management Group, based in New York, said: “We’ve gone back to sourcing as we had…Sourcing today has become an art form, and there’s a global market available to U.S. importers.”
Since most companies are under margin pressure from retailers, firms will have to focus even more on cutting sourcing costs, a point that has been further emphasized with the decline of the economy, Ellinger said.
“Most, if not all, companies have got to become sourcing [rather than] manufacturing oriented,” he said. “It means they’ve got to be able to look at the world as opposed to any specific factory. The biggest challenge confronting importers will be in 2005 when quotas go away.”
Shamash’s White said he thinks China and India will be the natural location for manufacturing after WTO members drop their quotas on textiles and apparel. “Retailers and garment manufacturers don’t want to get involved in owning piece goods. They want it all done in a package by a sourcing company.”
But O’Rourke, the consultant, said she doesn’t believe all sourcing will shift to China in 2005 “There is going to be a surge in production from China, but much of that will be production that’s shifted out of countries like Malaysia and the Philippines,” she said. “I believe that China will take the market shares from other Asian countries, not from CBI and Mexico.”
O’Rourke said she thinks Mexico and South America have found their niche as quick-response suppliers in several low-cost categories, while Asia will continue to focus on the mass market.
“Right now, it’s difficult to see through the trees because of the economy,” she said. “But I think in Central America, you have different capabilities that are as low-cost as anyone in Thailand or Malaysia and certainly with lower costs than places like Turkey.”
From a sourcing point of view, O’Rourke said the apparel industry will always search the world over and shift from one country to the next.
Li & Fung’s Haugen noted African countries are gaining market share and said producing in the Caribbean is expensive due to the price of U.S. fabrics.
“We’re seeing movement out of the Caribbean and into Africa because people would rather save the quarter than the four weeks,” he said.
Unifi’s Little said the African Growth and Opportunity Act — which extended trade benefits to sub-Saharan African countries — reinforces opportunity in Africa for Asian companies looking to invest. “They’ll ship their piece goods to Mauritius or Madagascar and then ship it into the U.S. duty free, since those countries don’t have duties,” he said.
In terms of business, the effects of Sept. 11 appear to have been only immediate, but people are still being conservative, said Claiborne’s Zane.
“After 9/11, people were reacting to cancellations to orders, and they may have gotten some immediate delays, like ships not being able to come into certain ports, and that resulted in late shipments to retailers,” he said. “But those were one-time events, and I don’t think 9/11 itself had any effects on sourcing. Except for Pakistan, which, unfortunately, got hit hard.”
Emanuel Weintraub, president and chief executive officer of the Fort Lee, N.J.-based Emanuel Weintraub Associates, said, “Companies got spooked because the impossible happened to our country. We have recovered, and the concerns we had about international sourcing have receded.
“We source these products internationally, and that will not go away,” he said. “None of our clients have seriously modified their sourcing strategies — they’re locked into where the goods are coming from. Jones is doing what they’re doing, Hilfiger does what they do, Leslie Fay, and on and on and on.”